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January 23, 2013

Downsizing Your Home: Is It Worth It?

Boomers should consider renting, not downsizing, to save cost of living expenses

Boomers who intend to move into a smaller home to lower their cost of living probably won’t save much money doing so, according to a report by the personal finance website GoBankingRates.com. In some cases, the report found, they may end up paying more.

The report cited research from the Demand Institute that found 40% of older boomers plan to move in the next five years. However, before they move, they need to determine how much they can save; if they can’t cut their expenses by 25%, they shouldn’t bother trying, according to the report.

Some costs boomers need to consider before they downsize include the drop in value in their current home, fees and commissions on selling their current home and purchasing a new one, and mortgage closing costs if they refinance. Moving expenses, while much lower than other costs, should also be considered.

Boomers may also underestimate the impact of costs not associated with the actual change in property. The report referred to 2009 data from the Boston College that found most older Americans who moved stayed within 20 miles of their previous home. That means boomers who downsize their home but stay in the same neighborhood will be paying just as much for utilities, food and other necessities. If they do move to a new area with a lower overall cost of living, they have to consider how it will affect their lifestyle. For example, if they move to a rural area, they may find travel expenses increase.

The report suggested boomers who are intent on downsizing may consider renting as a viable option if they find the costs of buying a smaller house outweigh the benefits.